Skip to main content

Main menu

  • Home
  • Current Issue
  • Past Issues
  • Videos
  • Submit an article
  • More
    • About JPM
    • Awards
    • Editorial Board
    • Published Ahead of Print (PAP)
  • IPR Logo
  • About Us
  • Journals
  • Publish
  • Advertise
  • Videos
  • Webinars
  • More
    • Awards
    • Article Licensing
    • Academic Use
  • Follow IIJ on LinkedIn
  • Follow IIJ on Twitter

User menu

  • Sample our Content
  • Request a Demo
  • Log in

Search

  • ADVANCED SEARCH: Discover more content by journal, author or time frame
The Journal of Portfolio Management
  • IPR Logo
  • About Us
  • Journals
  • Publish
  • Advertise
  • Videos
  • Webinars
  • More
    • Awards
    • Article Licensing
    • Academic Use
  • Sample our Content
  • Request a Demo
  • Log in
The Journal of Portfolio Management

The Journal of Portfolio Management

ADVANCED SEARCH: Discover more content by journal, author or time frame

  • Home
  • Current Issue
  • Past Issues
  • Videos
  • Submit an article
  • More
    • About JPM
    • Awards
    • Editorial Board
    • Published Ahead of Print (PAP)
  • Follow IIJ on LinkedIn
  • Follow IIJ on Twitter
Article

The Moral Hazard Problem in Hedge Funds: A Study of Commodity Trading Advisors

Li Cai, Chris (Cheng) Jiang and Marat Molyboga
The Journal of Portfolio Management Winter 2017, 43 (2) 77-89; DOI: https://doi.org/10.3905/jpm.2017.43.2.077
Li Cai
is an assistant professor of finance at the Illinois Institute of Technology in Chicago, IL.
  • Find this author on Google Scholar
  • Find this author on PubMed
  • Search for this author on this site
  • For correspondence: lcai5@stuart.iit.edu
Chris (Cheng) Jiang
is the senior statistical modeler at PayNet Inc. in Skokie, IL.
  • Find this author on Google Scholar
  • Find this author on PubMed
  • Search for this author on this site
  • For correspondence: cjiang@paynet.com
Marat Molyboga
is the chief risk officer and director of research at Efficient Capital Management in Warrenville, IL.
  • Find this author on Google Scholar
  • Find this author on PubMed
  • Search for this author on this site
  • For correspondence: molyboga@efficient.com
  • Article
  • Supplemental
  • Info & Metrics
  • PDF (Subscribers Only)
Loading

Click to login and read the full article.

Don’t have access? Click here to request a demo 
Alternatively, Call a member of the team to discuss membership options
US and Overseas: +1 646-931-9045
EMEA: +44 0207 139 1600

Abstract

The asymmetric nature of performance-based compensation in hedge funds introduces a moral hazard problem in which investors bear the negative consequences of fund managers’ risk choices. In this article, the authors analyze whether risk shifting by a hedge fund manager is related to the manager’s investment strategy and survivorship concerns. Using gross fund returns from 1994 to 2014, the authors find that the tendency to increase risk following poor performance is weak (strong) when there are strong (weak) managerial survivorship concerns. At the same time, risk shifting is significantly less prevalent when a manager uses algorithms, instead of discretion, in an investment strategy. The authors introduce a new model for estimating the economic impact of risk shifting on hedge fund managers and investors. They estimate that fund managers generate an additional 0.25% per annum in fees that negatively impact investors’ risk-adjusted returns.

  • © 2017 Pageant Media Ltd
View Full Text

Don’t have access? Click here to request a demo

Alternatively, Call a member of the team to discuss membership options

US and Overseas: +1 646-931-9045

UK: 0207 139 1600

Log in using your username and password

Forgot your user name or password?
PreviousNext
Back to top

Explore our content to discover more relevant research

  • By topic
  • Across journals
  • From the experts
  • Monthly highlights
  • Special collections

In this issue

The Journal of Portfolio Management: 43 (2)
The Journal of Portfolio Management
Vol. 43, Issue 2
Winter 2017
  • Table of Contents
  • Index by author
Print
Download PDF
Article Alerts
Sign In to Email Alerts with your Email Address
Email Article

Thank you for your interest in spreading the word on The Journal of Portfolio Management.

NOTE: We only request your email address so that the person you are recommending the page to knows that you wanted them to see it, and that it is not junk mail. We do not capture any email address.

Enter multiple addresses on separate lines or separate them with commas.
The Moral Hazard Problem in Hedge Funds: A Study of Commodity Trading Advisors
(Your Name) has sent you a message from The Journal of Portfolio Management
(Your Name) thought you would like to see the The Journal of Portfolio Management web site.
CAPTCHA
This question is for testing whether or not you are a human visitor and to prevent automated spam submissions.
Citation Tools
The Moral Hazard Problem in Hedge Funds: A Study of Commodity Trading Advisors
Li Cai, Chris (Cheng) Jiang, Marat Molyboga
The Journal of Portfolio Management Jan 2017, 43 (2) 77-89; DOI: 10.3905/jpm.2017.43.2.077

Citation Manager Formats

  • BibTeX
  • Bookends
  • EasyBib
  • EndNote (tagged)
  • EndNote 8 (xml)
  • Medlars
  • Mendeley
  • Papers
  • RefWorks Tagged
  • Ref Manager
  • RIS
  • Zotero
Save To My Folders
Share
The Moral Hazard Problem in Hedge Funds: A Study of Commodity Trading Advisors
Li Cai, Chris (Cheng) Jiang, Marat Molyboga
The Journal of Portfolio Management Jan 2017, 43 (2) 77-89; DOI: 10.3905/jpm.2017.43.2.077
del.icio.us logo Digg logo Reddit logo Twitter logo CiteULike logo Facebook logo Google logo LinkedIn logo Mendeley logo
Tweet Widget Facebook Like LinkedIn logo

Jump to section

  • Article
    • Abstract
    • DATA AND VARIABLES
    • METHODOLOGY
    • EMPIRICAL RESULTS
    • ECONOMIC IMPACT OF RISK SHIFTING ON FUND MANAGERS AND INVESTORS
    • CONCLUSION
    • ENDNOTES
    • REFERENCES
  • Supplemental
  • Info & Metrics
  • PDF (Subscribers Only)
  • PDF (Subscribers Only)

Similar Articles

Cited By...

  • No citing articles found.
  • Google Scholar

More in this TOC Section

  • Editor’s Introduction for 2021 Special Issue on Multi-Asset Strategies
  • PERSPECTIVES: Plato or Aristotle: Who Got It Right? Evidence from the Equity Markets
  • Editor’s Introduction for 2021 Special Issue on Factor Investing
Show more Article
LONDON
One London Wall, London, EC2Y 5EA
United Kingdom
+44 207 139 1600
 
NEW YORK
41 Madison Avenue, New York, NY 10010
USA
+1 646 931 9045
pm-research@pageantmedia.com
 

Stay Connected

  • Follow IIJ on LinkedIn
  • Follow IIJ on Twitter

MORE FROM PMR

  • News
  • Awards
  • Investment Guides
  • Videos
  • About PMR

INFORMATION FOR

  • Academics
  • Agents
  • Authors
  • Content Usage Terms

GET INVOLVED

  • Advertise
  • Publish
  • Article Licensing
  • Contact Us
  • Subscribe Now
  • Sign In
  • Update your profile
  • Give us your feedback

© 2021 Pageant Media Ltd | All Rights Reserved | ISSN: 0095-4918 | E-ISSN: 2168-8656

  • Site Map
  • Terms & Conditions
  • Privacy Policy
  • Cookies